HELP

SHAUN’S CRITERIA

Hi Team,

I wanted to provide you some guidelines as you determine how we’ll finance our expansion. Please give this careful consideration, as we need to get this right.

1. I estimate we’ll need $150,000 to increase capacity in order to stock the five additional pop-up stands

2. We’ll need to make sure we have additional funds available to increase our marketing efforts to stimulate demand

3. I’d like to maintain or increase our profit margins

4. If we’re successful over the next two years, we’ll likely seek additional capital to expand into more stores, so I’d like to do all we can now to enhance our credibility

We need to move on this quickly, so I’d like an answer by the end of the week.

-Shaun

FINANCING OPTIONS

Option 1: Equity Raise $150,000 from a venture capital firm in exchange for 30% of the company

Option 2: Debt

Secure a loan of $150,000 at a 10% annual interest rate, to be repaid over 7 years

Option 3: Debt + Self-Financing

Secure a loan of $100,000 at a 7% annual interest rate, to be repaid over 7 years, and self-finance the remaining $50,000

JUNIOR ACCOUNTANT EMAIL

Hi,

I’m working on expenses from the last quarter for the revised income statement, but I’m unsure of what to do next. I grouped similar transactions to compile the following list:

How would you like me to proceed given where we are in the process? Thanks in advance for your guidance.

Best,

Jenna S.

1. automotive maintenance cost
2. travel expenses
3. training and development costs
4. office rent
5. raw material purchases

1. inventory purchases
2. marketing expenses
3. payroll expenses
4. interest expenses
5. technology purchases
6. office supplies expenses

2

STRAYER UNIVERSITY | COPYRIGHT © 2016. ALL RIGHTS RESERVED. SUNSTRUCK SUNGLASSES INCOME STATEMENT For Year Ended September 30, 2016 REVENUES Sales revenues Other revenue Total revenue COST OF GOODS SOLD COGS GROSS PROFIT EXPENSES Selling, general and administrative expenses Marketing and advertising expenses Total expenses INCOME FROM OPERATIONS OTHER EXPENSES Interest expense $778,590 $11,000 $789,590 ($428,225) $361,365 ($78,959) ($55,271) ($153,050) $208,314 ($51,000) $157,315 Income tax expense NET INCOME PRETAX INCOME ($55,060) $22,500 Depreciation and amortization ($18,820) $102,255

3

STRAYER UNIVERSITY | COPYRIGHT © 2016. ALL RIGHTS RESERVED. SUNSTRUCK SUNGLASSES BALANCE SHEET At September 30, 2016 ASSETS CURRENT ASSETS Cash Accounts receivable Merchandise inventories Total current assets LONGTERM ASSETS Property, truck and equipment TOTAL ASSETS LIABILITIES CURRENT LIABILITIES $145,500 $468,000 $613,500 $37,500 LONGTERM LIABILITIES Truck loan Accounts Payable $28,000 $55,220 $62,280 $40,000 B+M loan $360,000 Total long-term liabilities TOTAL LIABILITIES $479,500 SHAREHOLDERS’ EQUITY CONTRIBUTED CAPITAL $12,000 RETAINED EARNINGS TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY TOTAL SHAREHOLDERS’ EQUITY $122,000 $442,000 $134,000 $613,500 Operating loan $42,000

4

STRAYER UNIVERSITY | COPYRIGHT © 2016. ALL RIGHTS RESERVED. $75,000 SUNSTRUCK SUNGLASSES STATEMENT OF CASH FLOWS For Year Ended September 30, 2016 CASH FLOWS FROM OPERATING ACTIVITIES Cash collected from customers Cash paid to suppliers and employees Cash paid for interest Cash paid for taxes Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Cash paid on truck loans $99,140 ($20,000) ($529,580) ($50,000) ($55,060) $733,780 Net cash used for investing activities CASH FLOWS FROM FINANCING ACTIVITIES Cash received from operating cash loan ($60,000) $12,000 NET INCREASE IN CASH DURING YEAR CASH AT BEGINNING OF YEAR Net cash provided by financing activities ($23,255) CASH AT THE END OF YEAR TO DATE $27,885

5

FINANCE & ACCOUNTING - SENIOR ACCOUNTANT ANALYSIS

Due Date

Week 5

Note: While representative of possible situations faced by SunsTruck Sunglasses, all scenarios in this assignment are fictional.

Real Business

Large discount retailers like Target and Walmart employ large teams of Finance and Accounting professionals to help measure and understand the financial health of the business. Financial and accounting information helps these businesses make educated financial decisions, such as whether or not to continue partnering with a retail supplier. While often smaller businesses, it is equally important for these retail suppliers to use financial and accounting data to make educated decisions, such as the best approach to gaining additional funding.

Your Role

This week, you'll assume the role of Senior Accountant with SunsTruck Sunglasses.

WHAT IS A SENIOR ACCOUNTANT?

Senior accountants take ownership of reporting costs, profitability, margins and expenditures for a given business. They use the principles of accounting to analyze sales information, create financial reports, make recommendations about the financial health of the company, and more. They are also responsible for training junior accounting staff.

For the last six months, SunsTruck has partnered with the discount retail store to run a pop-up sunglasses stand in their stores for a big summer promotion. Due to the high customer purchase rate, the store has requested stock for five additional stores. SunsTruck needs to increase its capacity to meet the additional demand. In order to do so, SunsTruck needs additional money.

In this assignment, you will need to help determine which type of financing option is best for your company and train your junior accountants on the accounting cycle and financial statements.

INSTRUCTIONS

Step 1: Financing

The junior accounting team has assembled a Financing Report that (a) offers three options for securing the additional funds required to meet the new order; and (b) details the criteria Shaun, the owner of SunsTruck, would like you to consider when choosing one of the options. Based on this report:

• Identify which financing option you think is the best option for SunsTruck to pursue given Shaun’s constraints. Explain the rationale for your decision.

Note: You should complete Steps 2,3 & 4 after reading the material in Week 5.

Step 2: Accounting Cycle

A junior accountant is working to get everything in order for the new financing and has come to you with a question about what do next in the accounting cycle.

• Read the email the junior accountant sent you and identify the best next step to take in the accounting cycle. Explain your reasoning.

Step 3: Financial Statements

A potential investor has been identified, but before it is willing to commit, it has requested information about SunsTruck’s current debt from the junior accountants.

• Identify the correct financial statement for your junior accountants that will provide the investor with the information it has requested. Explain to your junior accountants why you are giving them this financial statement and where the debt information is located.

Step 4: Financial Analysis

If you were the type of financier selected in Step 1, would you invest in SunsTruck? Explain the rationale for your decision.